Cross-border is one of the fastest growing segments in payments, and like many other areas of the industry, it’s changed with the coming of new technology and new capabilities. Global financial services companies have seen international trade start off with 12 key countries to now encompass around 200, with total cross-border payment volumes once totaling a million and now in the billions. PYMNTS recently sat down with Earthport CEO Hank Uberoi to find out how his company, using its “global ACH” capability, delivers high volumes of low value payments across the world – from one open network.
KW: I wanted to get your perspective on one of the most interesting and fastest growing segments of payments: cross-border. It’s certainly gotten the attention of a lot of players in the space. Let’s start with the basics – what problem do you solve in the cross-border arena and who most benefits from what you do?
HU: The cross-border arena is one that’s been done in the same way for 30-40 years, when the whole correspondent banking infrastructure was set up. That made a lot of sense because we were talking about 12 countries that mattered, a few thousand companies and maybe about a million of payments. Fast-forward to today, we have 200 countries, millions of companies, and billions of payments. The process hasn’t changed.
The fundamental issue with the cross-border process is that it’s based on a series of bilateral relationships. If I’m a sender and I want to send to 40 countries, I need to have 40 relationships. I have to have accounts in those 40 countries, I have to maintain balances in those 40 currencies, and I have to reconcile them constantly.
When you take examples from other industries, when scale and volume and complexity grow exponentially, you need to create a central hub where everyone can have one connection rather than hundreds of connections. When you scale to thousands of locations, it becomes very difficult to scale to thousands banks.
We provide a hub that fundamentally allows anyone that wants to move money from point A to point B use a single connection to us, and we can deposit money into practically any bank account in the world.
KW: So, when you say you’re the single hub, does that mean you take on risk?
HU: No, we don’t take on any risk because our whole process is one that deals with cleared funds, and when we do foreign exchange, it is done on an agency back-to-back basis. A good way to think of us is as the provider of the rails that deliver payments from point A to point B.
KW: Are you replacing something, or are you complementing something?
HU: We believe the model we are creating is incredibly disruptive to the way cross-border payments are done for a certain segment. That is the low value, high volume segment. If you want to move a $40 million payment from point A to point B, we can do it, but that’s not where our value-added is. It’s in the higher volume payments going into many countries. And in those, while I said we are very disruptive, ironically, we are disruptive without being competitive.
Our whole model is based on a partnership model. We are creating a white-labeled solution to offer to the incumbents because that’s the way we will get the maximum scale out of the industry. We want to be a deep expert in a highly complex field that’s very narrowly focused. We partner with the incumbents, take out the inefficiencies in the model, but allow them to serve their customers in a better way.
KW: When you say low value/high volume, are you talking about disbursements or commerce – what specifically are the use cases you’re solving for?
HU: When people talk about payments these days, there’s a lot of attention, but if you take the total of all of the conversations, it probably adds up to 15 percent of the payment volume. They’re all talking about consumer focus, mobile wallets, remittances, and some e-commerce. But if you really look at the broad volume of payments that go through on a global basis, it’s about 6 or 7 or 8 times all of those combined because it deals with every element of payments – invoice settlements, pension payments, payroll, trade, remittances, eCommerce and more. There isn’t a segment that we don’t touch.
KW: Is there a particular niche where you’re seeing a lot of demand today, has that changed in the last 12-24 months, and do you anticipate changes in the next 3 or so years? How do you see the market evolving?
HU: The only thing I would say that is different is that we don’t focus on a narrow niche from a segment perspective, because we believe that what we do from a low value, high volume perspective probably addresses 80-90 percent of the cross-border payments. Where we are narrow is in terms of the functionality of what we do – if you try to do everything for everyone, in a very large volume, you will fail.
We have chosen to be an expert in a highly regulated and focused area, so the niche is delivering payments from point A to point B, but we won’t get into our customers’ business. We don’t deal with consumers or corporates – we’re trying to go to the highest level of aggregation to do those payments.
What we’re seeing is acceptance increasing. When we first went down this path, and we went to a company and said there was a new way of doing cross-border payments using a concept called global ACH, they would look at us like we were crazy because payments have been done in the same way for decades. Convincing someone to change the way they do it, particularly in a risk averse, highly conservative, highly regulated industry like banking was very difficult.
When we fast-forward to today, where we have 2 of the top 10 banks in the world, 4 of the top 20 banks in the U.S., and some of the most sophisticated financial institutions in the world as clients of ours, we’re seeing the attitude toward what we’re offering move from skepticism to one of acceptance and realization. Not only is it needed, it also works well.
KW: So “Global ACH” acts as the rails that you’ve set down, correct?
HU: Well currently, our model is to deliver from anything to anything. The key focus that we chose to start with was to deliver from anything to a bank account. Since we don’t deal with the originator, the origination can be in any form. If our client is a remittance company, they could be accepting cash or credit cards, or direct debiting banks. The origination can be at any point, and we’d then deliver to a bank account. But we’re working on products where we’d be able to deliver to any mobile wallet in the world and eventually any prepaid card in the world.
KW: The advantage then that you offer with this disruptive, yet partnership model is speed, or is it cost? Is it efficiency? What about the data that wraps around those transactions?
HU: The reason people first started to look at us is because we offered a solution that was much cheaper than anything else. Very quickly, once people went live, they realized that our real value was not just the cost. The main value was in the accuracy, transparency and predictability.
We offer a cheaper service that’s highly accurate – our failure rate is a small fraction of what you would face in a normal correspondent banking process. The reason for that is when you go through multiple banks through multiple links, some are automated and some are manual and that introduces errors. Based on the way the business has evolved, there are charges along the way. There’s a lack of transparency as to how much money will show up on the other end.
We also offer a completely transparent model – when a client gives us a file or comes to us through the API, they know in real time exactly how much money will be delivered at the other end in the local currency, when it will be delivered, and we guarantee that there will never be charges along the way that are not upfront.
KW: How many countries do you touch today?
HU: We are currently in over 60 countries with another 18 in the pipeline. We think that is by far the largest ACH network in the world.
KW: So let’s talk about bitcoin, crypto-currencies and the transport of protocols that these new currencies represent. Certainly the selling proposition that these alternative rails and currencies offer is speed, transparency, data, and a business model that is cheaper. That sounds just like Earthport. How do you feel about the crypto-currencies – are they threatening to you?
HU: They are not threatening at all – I am excited about them, especially from an industry standpoint. The problem that we’re trying to solve for our clients is to take out the inefficiencies and offer them a better value proposition. By being a hub in the middle, our whole idea is to insulate our client from having to deal with changes that keep coming along, whether it’s a change in technology in a destination country, in formats or in a product capability in real time that comes along, we will implement it first. Similarly, when a new protocol comes along like you described that starts to become accepted by the industry, we cater to what our clients ask for. If those crypto-currencies should become an industry standard, we will implement and offer them that.
When you think about the protocol in crypto-currencies, there are two parts – one is the technology, which is faster and cheaper, but what it now needs is the trust, and the other part is the business model. With the business model, if I am using that protocol and I have to go point to point, I will have some of the same issues that I had with correspondent banking. If I want to send things to 30 countries, I will have to have 30 accounts and relationships and anything else.
If we become a hub for that protocol, we would offer the same benefits to our clients using that new technology. Our goal is to keep up with the evolution of the industry, focusing on the delivery rails. A good analogy for us is that we are for the payments industry what FedEx, UPS and DHL are for the physical world. Companies do their own manufacturing anywhere in the world, and don’t need to worry about the logistics of delivery. If better modes of transportation become available, they take care of that and companies benefit from it. We want to do the same thing for the world of payments.
KW: I’d like to get your perspective on the global nature of payments and the cross-border opportunity. It’s exciting and fast growing, but there are a lot of things happening around the world that are interfering with how trade gets done. What are you seeing, and how are you accommodating some of the geo-political and economic pressures emerging?
HU: That’s always been one of the challenges of doing anything on a global basis – especially these days more so than in the past. As a player that’s working across 60 countries and heading toward 100, that will be our life. We have to navigate changes in regulation and really understand them – I don’t think there’s a formula to it. You have to be nimble. One advantage we have is being narrowly focused on a particular space. We have the luxury of being able to understand it better and deeper so that when things change in a particular space, we focus on it right away and pass the benefit of that knowledge to our clients.
But you’re absolutely right – this space is getting more and more complex. This is where specialist providers are going to not only become a better source of expertise, but become essential.
KW: So it obviously requires a lot of special capabilities to be effective in moving money around the world. Is there one particular capability that stands above all others that if you don’t have, you won’t be successful?
HU: I think it is trust. If you’re going to move people’s money around, they have to understand that your infrastructure is bulletproof, and your bank grade, reliability, capital base, expertise, and compliance process amounts to a single thing – trust. You’re not selling against competition, a better process, or price – you’re selling against risk. What we have to demonstrate to our clients is that we are better positioned to improve their process and reduce their risk.
Chief Executive Officer at Earthport
Hank Uberoi has served as Earthport’s CEO and Executive Director since February 2010. Previously an investor Hank says it was Earthport’s unique offering in the payments market and huge growth potential that made him want to become more involved and lead the company to success.
Before joining Earthport, Hank focused on investments in technology, financial services and payments with an emphasis on cross-border business models. Until April 2004 he was the Chief Operating Officer at Citadel Investment Group. Hank previously spent fourteen years at Goldman Sachs, where he was a partner and co-Chief Operating Officer of the technology division.
“I believe there’s no other company like Earthport and that it’s a positive disruptive force in the industry,” says Hank. ”What really excites me is that through Earthport we’re creating not another brand but a new industry.”
Hank graduated from Williams College, Massachusetts with a BA, Magna Cum Laude. Given Earthport’s global reach, Hank divides his time between the New York office and the London headquarters.
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